I would think that them holding your deposit would be illegal too, but unless you have a contract in writing (that they would hold the puppy due to your deposit), I don't think it would hold up in a court of law. Without a written contract, you're essentially giving them your money, and trusting them to do what they say.

This situation is very sad, and I'd be very angry and upset as well. Perhaps you could find "the one" though, at a shelter or rescue

Good luck, and I'm truly sorry for what those rude and inconsiderate people did.